NEWS,23.12.2012

'Stop-gap' fix likely in US fical talks

The fiscal cliff deadline is days away and the US Congress and President Barack Obama have left town for Christmas.But even if they were still here, it wouldn't have mattered, according to Steny Hoyer, the second-ranking Democrat in the House of Representatives. He says they were going nowhere to resolving the disagreement over how to fix the nation's fiscal problems. Last month's dreams of a "grand bargain" of tax hikes and spending cuts seem long gone. They had been reduced to more modest bargains in mid-December, and as 2013 approaches, are on the verge of relegation to a "stop-gap measure," at best the sort of temporary fix that Congress undertook in 2011. A stop-gap that puts everything off for a while but resolves nothing is now the most promising alternative, if there is to be one, to the across-the-board tax hikes and spending cuts described as a "fiscal cliff" because they threaten to send the U.S. economy plunging into another recession.It is also the way fiscal showdowns have ended in Washington in recent years.Such a fix, at best, would delay the spending cuts and tax hikes further into 2013 as well as work to address in a long-term way a government budget that has generated deficits exceeding $1 trillion in each of the last four years. Even worse, it would set up a huge fight in January and February over raising the US debt ceiling, which controls the amount of money the federal government can borrow. Dysfunction in Washington was specifically cited as one of the reasons rating agency Standard & Poor's cut the US debt rating to AA-plus after a battle over the debt ceiling in 2011. That alone not to mention going over the cliff  could lead to another rating cut.At worst, the new year could start with a full-fledged jump off the 'cliff,' with an understanding, communicated to financial markets, that Congress and the White House would come back and try again for a solution. Given the apparent deadlock, some congressional aides this week said that Washington needed to begin telegraphing to Wall Street that markets should not panic if a "fiscal cliff" deal is not struck in December.The goal, one aide said on condition of anonymity, is to avoid starting 2013 with a steep stock market drop like the one the US suffered in 2008, when the country's financial industry was falling apart and Congress was divided over what to do.On Friday, Obama acknowledged that only small steps might be possible with so little time remaining. Those, the Democratic president said, would consist of extending benefits for the long-term unemployed and keeping income tax rates low for 98 percent of Americans - meaning raising taxes on households with net incomes above $250,000 a year but not for those earning less.He held out the possibility of something "comprehensive," as he put it, but it had a hollow ring at the close of a work week that saw House Speaker John Boehner step back from negotiations and pursue a partisan plan that even some of his fellow Republicans could not stomach. The steps that Obama outlined were immediately rejected by Republicans, who have given ground on their previous steadfast opposition to any tax hikes but are still demanding that the White House agree to more substantial spending cuts."The president has failed to offer any solution that passes the test of balance," declared Boehner spokesman Brendan Buck, minutes after the end of Obama's statement on Friday.On Saturday, a spokesman for Senate Republican leader Mitch McConnell was similarly dismissive, noting Obama's call had neither bipartisan support nor spending cuts to ride along with tax increases.McConnell, on Friday, suggested bringing up a House-passed bill that extends current tax rates for all Americans, including the top earners, and then pushes for comprehensive tax reform next year that theoretically could raise new revenues to help cut deficits.But Obama has promised repeatedly to veto any extension of the expiring Bush-era tax cuts that fail to hike rates for the wealthy. And Democrats, who control the Senate, have dismissed the McConnell idea, arguing that Obama ran his successful 2012 re-election campaign on a promise of forcing the wealthy to bear more of the burden of deficit reduction. Democratic aides in Congress think their own bill implementing Obama's $250 000 income threshold, which passed the 100-member Senate in July with 51 votes, could breeze through this month, or next year after the "fiscal cliff" is breached.The prospect of a breach is being discussed far more seriously now, and not just as a bluff or to set up the other side for blame. "I think we're going to go over the cliff," said Republican Representative Patrick Tiberi of Ohio. "I don't see something getting done. "In an MSNBC interview Friday, Hoyer, a 31-year veteran of Congress from Maryland, said it wouldn't matter if everyone was in Washington instead of on holiday. "Frankly, we've been in town for four weeks and members haven`t been doing much," he said, calling it "one of the least productive times that I've been in Congress."Even Obama speaks of "a mismatch" between how people are thinking about the looming tax hikes and spending cuts "outside of this town and how folks are operating here. And we've just got to get that aligned," he said in his statement. ITG Investment Research Chief Economist Steve Blitz on Saturday said sliding the "fiscal cliff" negotiations into the new year was not a huge deal. "I think markets will pressure for a deal in January," he said.The "pressure" could be in the form of a significant stock market drop, which would hit workers' retirement plans, threaten to deter consumer and business spending, and possibly rattle other countries' economies at a time when the global economy is far from robust.

The forever investment

With record low interest rates providing little incentive to open a bank account, canny Germans are choosing a more glamorous place to put their money this Christmas jewellery. Demand for diamond rings and gold watches is also being fuelled by an uncertain economic outlook, which is making shoppers in Europe's largest economy seek out gifts more likely to retain and possibly increase their value.The BVJ German association of jewellers and watch retailers is forecasting sales of €5bn ($6.6bn) this year, matching last year's record despite the eurozone crisis, and with over a third of that to come over the Christmas season. "If the trading we have seen in the last few days keeps up we may even improve slightly on last year," BVJ managing director Joachim Duenkelmann told Reuters.The BVJ says Germans are looking for security against the backdrop of the eurozone debt crisis, political uncertainty in the Middle East and continuing low interest rates. "People are investing in two things these days diamonds and property," said one shopper admiring diamond rings and a single 2.1 carat diamond costing €63 000 in a window on Frankfurt's exclusive Goethestrasse shopping street.Interest rates in the eurozone are at an all-time low of 0.75%, and many economists expect the European Central Bank to cut them further in early 2013 to try to revive the bloc's ailing economy. While European neighbours are tightening their belts, low unemployment and rising wages are also encouraging Germans, traditionally a nation of savers, to spend their cash.Data from the Bundesbank shows the proportion of disposable income that Germans put intosavings stood at 8.8% in the third quarter of this year, down sharply from 13.7% in the first quarter, and compared with 10.4% in 2011."Consumers are therefore tending to put their finances into purchases that will keep their value, instead of leaving them in banks," market research group GfK said.The BVJ says gold, platinum and diamonds are seen as especially safe investments, and that while market prices of these metals have soared, that has not necessarily translated into sharply higher prices for jewellery. Gold prices are up around 7% this year and set for a 12th consecutive annual rise, driven by low interest rates, concerns over the eurozone and diversification into bullion by central banks. HSBC on Tuesday raised its forecast for platinum prices in 2013 and 2014.A study by Ernst & Young shows that 26% of shoppers in Germany were planning to buy jewellery as gifts this year, up from 23% last year."No matter what happens to the piece of jewellery or to the economy, the material value of precious metals and stones will remain," the BVJ's Duenkelmann said. German retailer Douglas may be battling stiff competition from online retailers like Amazon at its book stores, but says its Christ chain of 209 jewellery stores is a bright spot."Sales of diamond jewellery are currently on the up whether as an investment or simply as a piece of beautiful jewellery," Chief Executive Henning Kreke told Reuters.In the first nine months of its 2011/2012 business year, Douglas' jewellery arm saw a 10% rise in sales to €291m, with core profit up 7.6% to €34m.Staff at high-end jewellers in Frankfurt reported good demand for classic rings, necklaces and watches, especially those with diamonds. "People are looking for items that keep their value. We're definitely doing more business than last year," said a sales assistant at a jeweller who declined to be named because of company  policy

Netanyahu has little to fear ahead of vote

A month before Israelis go to the polls in a snap election, Prime Minister Benjamin Netanyahu has plenty to be confident about, with his only real challenges coming from within his own rightwing camp.Polls put the joint list of his Likud party and the Yisrael Beitenu faction far ahead of the opposition, and the question is not whether Netanyahu will lead the next parliament, but how many seats his joint list will ultimately win.Even the resignation of Yisrael Beitenu chief Avigdor Lieberman from his post as foreign minister, after his indictment on corruption charges, has failed to dent the list's lead, with surveys projecting it will take 37 of the 120 seats in the Knesset.In all, the rightwing nationalist bloc of parties led by the Likud-Beitenu list is expected to win 69 seats, far ahead of the opposition.The only unknown for Netanyahu is how many seats his faction can win."Netanyahu had a dream recently, ahead of his second consecutive term: he wanted to be Ariel Sharon," Yossi Verter of the Haaretz newspaper wrote recently, referring to the former Israeli prime minister."He dreamed of winning the same total of 38 Knesset seats that Likud won when it was headed by Sharon in 2003; in so doing, he would establish a government whose operation would not be contingent upon any single coalition partner and he would be unencumbered by blackmail or threats."The main obstacle to that dream will be Naftali Bennett, a former Netanyahu protégé who is now expected to lead the hardline national religious party Jewish Home to one of their best electoral results ever.The latest poll published by the Maariv newspaper on Friday showed the party, which now has just three seats in the Knesset, winning at least 12 seats.If the polls are right, they would become the third strongest party in the Knesset, behind only the Likud-Beitenu list and the opposition Labour party. The former head of Netanyahu's office, Bennett's political ideology and history mirrors that of the prime minister.He backs the settlement policy favoured by the prime minister and hails from the same elite Sayeret Maktal army unit in which Netanyahu served. A former high-tech entrepreneur, the 40-year-old also shares Netanyahu's excellent command of English, thanks to his American-born parents, and is similarly known as a savvy communicator. Bennett has been careful to appeal to the party's traditional national-religious base, but has also courted young, secular Israelis.He has made no secret of his desire to win at least three ministerial posts for his party, among them the housing ministry, which is seen as crucial by the settler movement for advancing its cause.Observers say Bennett's increasing strength in the polls is behind the government's recent push to advance major settlement projects in the West Bank, including in annexed east Jerusalem, in a bid to win back voters swayed by the charismatic leader.But Netanyahu denied that in comments to Israel's Channel 2 on Saturday night, saying the new construction was "a question of principle." "We live in a Jewish state and Jerusalem is the capital of Israel. The Western Wall is not occupied territory. We build in Jerusalem because it is our right," he said. Whatever obstacles Netanyahu may face will not, however, be coming from the opposition bloc, which the Maariv poll found was expected to win only around 51 seats, far short of the rightwing bloc.The Labour party led by Shelly Yachimovich tops the opposition, and is projected to win around 20 seats. HaTnuah, the new party formed by former foreign minister Tzipi Livni, is credited with around nine seats.Yesh Atid, the new secular centrist party headed by former journalist Yair Lapid, is projected to win around seven seats, while the once-dominant Kadima which garnered the most seats in the last elections is expected to see its parliamentary representation reduced from 28 seats to just one.